EC trying to shift focus towards sources of development finance beyond ODA

ECDPM Talking Points Last week, with little fanfare, not even a press release, the European Commission’s 2011 Annual Report and accompanying staff working paper annex on the European Union’s development and external assistance policies and their implementation in 2010 and the 2011 EU Donor Atlas were posted online.  The 196-page annex to the annual report provides detailed information on the delivery of EU commitments, a geographical and thematic overview of implementation and an assessment of the management of aid for results. The EU Donor Atlas provides a detailed mapping of EU donor activities to facilitate planning and programming and assist partner countries in strengthening their capacity to exercise leadership in development.

No reference was made to these communications either in this week’s European Parliament Development Committee discussions with EC officials and ECDPM. Instead, the focus of debate was on the EU’s Accountability report on Financing for Development 2011 (put forward by the EC in April and discussed by EU Ministers and, for the first time ever, Heads of State in May and June).

Renate Hahlen of EC DEVCO explained to Development Committee MEPs meeting on 12 July that the EU Accountability Report analyses and illustrates how the EU and its Member States have moved to fulfill their various commitments for more and better financing for development.  The report notes that official development aid (ODA) from the EU and member states still falls short of the intermediate target, but reaffirms commitments.  The report also calls on other donors to increase their ODA as a catalyst for other sources of financing for development while stressing that the most important source of development finance remains partner countries’ state budgets. The report also stressed the importance of the quality of aid and its effectiveness.

Hahlen explained that the report was well received, but Council conclusions consisted only of the ODA report to the European Council and only partially the ODA commitments. There was also no reflection on any of the other issues covered by the report. The EC finds that the EU Heads of Government Summit, who welcomed the Council report and included wording in their conclusions, did not reflect the urgency of action that is required to mobilse sufficient funds to reach the 0.7% ODA target. The EC also believes the Council missed an opportunity to discuss EU Member States’ views on the other important financing for development areas and draw conclusions. This would have been useful as the further scaling up of ODA will be difficult in the deepening financial crisis for a number of Member States. Hahlen said the EC hopes the Parliament will support all aspects of the EC’s work on financing for development.

ECDPM’s Deputy Director, Geert Laporte was also invited to make a presentation on this issue to MEPs. He said that the broader perspective on development effectiveness, beyond aid, in the EC’s report represents a major step forward since we know from experience that more aid money alone does not bring about development. A fact also recognised by the African Union and African institutions, who openly acknowledge that ultimately development is the responsibility of the governments and the people of developing countries. The EC’s efforts to also talk about improving domestic resource mobilisation, remittances, trade capacity, investment and innovative financing and to deal with climate change issues, external debt and policy coherence as ways to contribute to the transformation of societies and achieve development is a positive sign Laporte said.

The report, however, still overly stresses the 0.7% ODA target according to Laporte: “Let’s be very realistic, this ODA target will not be reached. We should not have reports where we systematically say that by 2015, in 4 years time, that the EU, in times of economic and financial crisis, will mobilise or spend 50b euros extra on development aid. So let’s be much more clear about what is realistic.”

While ODA is important, it is not the only financial resource that should be looked at. The EU could be much more ambitious when it comes to trying to come to grips with other sources of development finance beyond ODA Laporte said. There is limited knowledge on supporting tax governance and few support programmes on this. There are also a lot of problems in systematically assessing the political economy of developing countries as to how serious they are about their tax mobilisation. “Does it make sense”, he asked, “to invest a lot of resources in putting up accountability institutions like Parliaments or audit institutions or tax systems if you know that the political regime is absolutely not interested in these types of institutions?” Much better political economy analysis by the EU is needed in the countries where it is trying to support these new taxation and other domestic resource mobilisation efforts. The EU should also consider how to avoid that ODA substitutes own domestic responsibilities of developing countries. And the EU also needs to better do its own homework, for example achieving better results in terms of policy coherence for development and division of labour.

According to Laporte, the solution is not more aid but a new approach on finance for development based on co-responsibility of different actors – donors, including the EU Member States, the BRICS, civil society organisations, private sector and developing countries themselves – to apply a diversity of sources of development finance. All this together can realise a certain impact on development.

The European Parliament could play an important role by issuing warnings against reverse trends in what the EU is saying and actually doing Laporte suggested. It could warn, for example, to the trends we witness of a re-nationalisation of European aid and the phasing out of support to partner countries unilaterally by individual Member States. The Parliament can ensure that the longer term development work that needs to be done to create governance reforms and institutional development will not be neglected in favour of a short term approach focused on more easily measurable immediate tangible results – a trend we now seeing happening in many EU Member States.

The Parliament’s Development Committee will table an oral question and resolution on this issue to its September plenary session.

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